Argentina Slashes Export Taxes to Rescue Drought-Hit Farmers

(Bloomberg) -- Argentina slashed taxes on its major crops that provide billions of dollars in export revenue as it seeks to throw a lifeline to farmers wrestling a drought and low global prices.

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The government of President Javier Milei cut tariffs on exports of soy meal and oil to 24.5% from 31%. The levy on unprocessed beans was chopped to 26% from 33%. The tax on corn was lowered to 9.5% from 12%. There were reductions for other major crops, including wheat, barley and sunflowers.

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Soy meal futures in Chicago fell as much as 3.3% in Friday trading. Argentina is the world’s biggest exporter of the livestock feed, and also leads in soy oil, while it is No. 3 in corn. Soybean prices dropped as much as 1.8% while corn slumped 1.3%.

“We thought this display of solidarity was very important given farmers’ situation,” Economy Minister Luis Caputo said at a Thursday news conference. “We’re seeking nothing other than justice” for them, he added.

Argentina has taxed exports since the turn of the century, a rare policy drafted in the midst of its severe 2001-02 crisis, and then perpetuated to fund bloated government budgets — even though the tariffs held back development of key industries and, especially, beleaguered farmers.

Libertarian Milei is on a crusade to minimize state spending, but Caputo said the administration still can’t afford a blanket, permanent removal of the export levies, with crops alone contributing $5.4 billion last year to Argentina’s treasury.

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The tax breaks will go into effect Jan. 27 and last most of the harvest, with the bulk of fieldwork done in the second quarter. The rates are scheduled to go back up in July. That will spur farmers to trade their soy and corn straight away, beefing up central bank dollar reserves that Milei needs to help stabilize the economy ahead of midterm elections.

Growing dollar reserves is also a key issue in talks that Argentina is holding now in Buenos Aires with the International Monetary Fund for a new program to succeed its current $44 billion deal. A sticking point is Argentina’s foreign-exchange policy, whereby inflation outpaces the government’s monthly peso depreciation.

The resulting strong peso, low global crop prices and the drought are eating into farmers’ profit margins, with many operating at a loss this season. In essence for them, the tax breaks are a compensation mechanism.

For global crop traders, the policy boosts the competitiveness of Argentine food shipments against rivals like neighboring Brazil.

“This is crucial for farmers at a time when global prices are low and there are regions suffering a bad drought,” Sergio Iraeta, the government’s agriculture chief, said at the news conference. “I hope it rains.”

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